Bhopal (Madhya Pradesh): The annual Union Budget is a reflection of national priorities, and for a developing country like India, balancing defence preparedness with socio-economic development remains a complex challenge.
Given India’s security environment, the long-standing debate of “guns versus butter” must be addressed with nuance to ensure national security is strengthened without undermining economic upliftment.
The defence budget has steadily increased over the last five years, registering nearly a 40 per cent rise in nominal terms. For 2026–27, the allocation stands at a record Rs 7.85 lakh crore, a 15.2 per cent increase over last year’s Rs 6.81 lakh crore.
Funds for capability development and modernisation have risen from Rs 1.86 lakh crore at the Revised Estimates stage last year to Rs 2.19 lakh crore this year, marking a significant increase of 21.84 per cent. In the backdrop of Operation Sindoor and prevailing geo-strategic uncertainty, a higher defence outlay was both expected and necessary.
Capital allocations include Rs 63,733 crore for aircraft and aero-engines and Rs 25,023 crore for the naval fleet. Revenue expenditure, covering ammunition, fuel, salaries, repairs, and other operational needs, accounts for Rs 3.65 lakh crore. Defence pensions have been allocated Rs 1.71 lakh crore, about 21 per cent of the total defence budget.
As a result, revenue expenditure continues to consume nearly 62.5 per cent of the total allocation, leaving only around 37.5 per cent for modernisation. In an era defined by cyber, space, drone, AI, missile, and rocket warfare, this imbalance remains a serious concern. India must substantially enhance investment in indigenous capability and defence research, especially when its principal adversary to the north is technologically and financially far ahead.
Encouragingly, domestic defence production reached approximately Rs 1.51 lakh crore in FY 2024–25, reflecting an 18 per cent increase over the previous year. Defence exports have also risen to nearly Rs 23,000 crore, including radars, torpedoes, electronic warfare systems, patrol boats, helicopters, and missile components.
Despite these gains, India remains the world’s second-largest arms importer after Ukraine, according to SIPRI. Import dependence persists, particularly in aircraft and advanced air-defence systems such as the S-400. The exemption of Basic Customs Duty on components and raw materials for maintenance, repair, and overhaul of civilian and training aircraft is a positive step that should support the domestic aerospace ecosystem.
Nevertheless, most reforms remain incremental rather than bold. Nearly 77 per cent of defence R&D funding continues to be absorbed by DRDO and defence PSUs, despite their mixed delivery record, while the private sector receives a limited share.
Strong oversight and greater involvement of the Services are essential. Another long-pending reform is the de-linking of pension expenditure from the defence budget, as pension liabilities inflate headline figures while actual defence spending remains around 1.9–2 per cent of GDP. Defence civilians account for nearly 45 per cent of pension expenditure and could be shifted to a separate head. Overall, the Budget moves in the right direction, but deeper structural reforms are still required.
